Philippines Monetary Policy

At its 27 March monetary policy meeting, the Central Bank left its Reverse Repurchase Rate unchanged at 3.50%, a decision that was widely expected by the market. The rate has been kept at this level since October 2012. The Bank also decided to keep interest rates stable on its Special Deposit Accounts (SDA) facility. SDA facilities are fixed-term deposit accounts with maturities of between one week and one month that the Central Bank offers to credit institutions and bank trust entities. Conversely, the Central Bank increased the reserve requirement by 1.0 percentage points. The Central Bank explained its decision to keep rates stable, stating that, “the Monetary Board noted that the future inflation path is likely to stay within the target ranges of 4±1 percent for 2014 and 3±1 percent for 2015.” At the same time, the Central Bank recognized that pending adjustments in utility rates and possible increases in oil and food prices represent potential price pressures that make overshooting the inflation target range more likely than undershooting it. As the Monetary Board stated, its decision to increase the reserve requirement aims to reduce the financial risks that could be brought about by strong liquidity growth and swift credit expansion. Consensus Forecast panelists see the Reverse Repurchase rate at 3.84% in 2014. For 2015, panelists expect the Reverse Repurchase rate to rise to 4.27%.

Philippine exports contracted in November, after 12 months of expansions, mainly on the back of plummeting demand from Japan and a notable decrease in overseas orders to the United States and China, which more than offset stronger demand from Hong Kong and Singapore.